Publication: Monitor Volume: 4 Issue: 130

On July 7, the formal ceremony will take place in Vilnius at which the Lithuanian government will sell a 60 percent stake in Lietuvos Telecom (LT) to Amber Teleholdings, a partnership of Finland’s Sonera and the Swedish Telia. The buyers will pay US$510 million, less than the US$1 billion which was the government’s original target, but still a respectable sum. Amber also promises to invest US$221 million in modernizing the network over the next two years. Sonera already owns a quarter of Estonia’s Eesti Telefon. (Bank of Finland bulletin, July 3)

Most of Lithuania’s industry has already been privatized. The government is now turning its attention to the telecom, transport and energy sectors. The telecom privatization has generated much political controversy, with the political opposition claiming that there will be price-gouging of customers if the government hands over a telecom monopoly to the private sector. The LT company has virtual monopoly of land lines and was also given first mobile phone license. On June 17, President Valdas Adamkus signed a law guaranteeing the monopoly status of Lietuvos Telekom until the year 2002. The privatization process began last summer, when the UBS Swiss banking group was commissioned to solicit bids for the telecom operator. The original field of five rival bidders shrank to two: Sonera/Telia and the Danish Teledenmark group. In 1997 Telecom declared an operating profit of US$30 million, against a background of debts and loans totaling over US$100 million.

In order to make LT more commercially attractive, in February, the government allowed the company to start charging 2 US cents a minute for local calls (previously they had been free in return for a US$1.50 monthly fee). The move sparked street protests in many cities. (Radio Free Europe, February 19) Last year, the Social Democratic Party collected signatures in an effort to force a referendum on the government’s privatization program, but failed to get the necessary 300,000 signatures. They have also tried court action to stop the telecom sale. In a bid to head off protest the government exempted pensioners from the local call charge, and announced that some of the proceeds from the sale will be used to compensate citizens who lost their savings during the hyperinflation of the early 1990s.

Estonia privatized its telecom in 1992, Latvia in 1994. In both those states the government owns 51 percent of the privatized company’s shares, and in neither of those countries was there a public tender. So in some respects, the Lithuanian government is more progressive than its Baltic neighbors. However, the government has still not created a transparent institutional structure for determining future policy regarding telecom licenses and tariffs.